Management accountant of Ibri Mining Company attended a workshop on activity-based costing and was impressed by the results. After consulting with the production manager, he prepared the following information on cost drivers and the estimated volume for each driver.

Products

A

B

C

Total

Units produced

25,000

15,000

5,000

45,000

Direct materials Cost Per Unit in OMR

40

30

55

Direct labour in OMR

15.0

15.0

15.0

Cost driver

Cost driver volume

Total

A

B

C

Number of setups

125

75

50

250

Machine Hours

2,500

1,500

2,000

6,000

Direct labour hours

25,000

15,000

5,000

45,000

Number of Inspection

50

25

25

100

The management accountant also determined how much overhead costs were incurred in each of the four activities as follows:

Activity

Overhead costs in `OMR

Machining

Setup

150,000

Machining

750,000

Total of Machining Overhead Cost

900,000

Assembly

Assembly

360,000

Inspection

90,000

Total of Assembly Overhead Cost

450,000

Total Overhead Cost

1,350,000

Required:

(i) Determine the cost driver rate for each activity cost pool.

(ii) Use the activity-based costing method to determine the unit cost for each product.

(iii) Evaluate Activity based costing and comment how it differs from absorption (traditional costing)